TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, March 28, 2014

Feds Partner With TurboTax to Push Income-Based Repayment on Student Loan Borrowers, Despite Potential Hefty Back-End Tax Bite

TurboTax (2013)Politico:  Student Loan Debt Deal Comes With Tax Catch:

Millions of taxpayers struggling with student loan debt are being pitched what may seem like a dream come true this tax season: lower monthly payments and a chance to see a chunk of their debt disappear.

But there’s a catch: the potential for a huge tax bill down the road.

The new push from the Departments of Treasury and Education uses tax time to promote the opportunity for a borrower to have their entire debt repaid after 20 or 25 years. The agencies are partnering with TurboTax, the tax software used by more than 18 million Americans, to advertise the deal.

It’s part of an administration-wide effort to make college affordable, but consumer advocates worry that the tax-time pairing fails to fully disclose that the debt forgiveness counts as income and will likely lead to a bill from the Internal Revenue Service. Some even liken it to the too-good-to-be-true mortgages that played a role in the collapse of the housing market. ...

A new element of the program this year involves the marketing effort by TurboTax, sold by Intuit. Turbo Tax users will see information about loan repayment options and a link to the Department of Education website in a section of the program called “My Money Tools.”

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Debt forgiveness counted as taxable income means that the Feds are willing to settle for - what? - some 15¢ or 20¢ on the dollar for the outstanding loan balances? At a $1-trillion student loan debt, this sounds like an $800-billion give-away without the benefit of legislation. Yet, I expect that our supine Congress will sit by and let this happen.

"Let it burn" is not truly a philosophy of governance, but I no longer see how it's even preventable anymore.

Posted by: Steve S. | Mar 29, 2014 9:18:28 AM

@steve s,

1. Income-based repayment came from Bush 43.

2. On paper, federal student loans make billions for the government.

Posted by: UnemployedNortheastern | Mar 29, 2014 7:07:49 PM